Alibaba Group Holding Ltd (NYSE:BABA) dealt another blow to Amazon.com, Inc. (NASDAQ:AMZN) this week. The rapidly growing Chinese e-commerce giant announced that it will be launching its own line of voice-activated home assistants this August. Not only does this bode ill for Amazon’s presence in China, it also provides a considerable opportunity for BABA stock and options traders.
Dubbed the Genie X1, Alibaba’s new home assistant will hit consumer’s homes on Aug. 8. While Amazon’s Alexa has had a three-year head start, the U.S. online retailing giant has had trouble making headway in the Chinese market due to stiff government regulations.
As a result, the Genie will have no trouble making up for lost time. After all, Genie will be able to offer so much more access right out of the box, leaving Alexa to fade amid a sea of red tape.
And that’s not including the potential for Genie’s growth outside of China. It’s just one more feather in Alibaba’s cap that makes BABA stock that much more attractive than its U.S. competitors.
Regular readers are aware of my bullish stance on BABA stock. In fact, if you managed to get into the last Alibaba options trade I recommended — a July $140/$145 bull call spread — you had the potential to bank a return of more than 1,400%!
That said, very few of you, if any, got in on that trade at the recommended bid/ask prices, as BABA stock rocketed higher the morning of June 8 after Alibaba forecast its largest quarterly increase in revenues since its 2014 IPO.
But there is another event on the horizon that could have a similar impact on the shares. Alibaba is slated to release its fiscal first-quarter earnings report on Aug. 17, a day ahead August options expiration. Wall Street is currently expecting a profit of 92 cents per share, up 28% year-over-year, and revenue of $6.98 billion, up 46.8%. While Genie certainly won’t have much impact at all on this quarterly report, it could affect guidance.
Click to Enlarge Admittedly, there is little room on the brokerage front for upgrades that could help boost BABA stock higher. Thomson/First Call reports that 39 of the 41 analysts following Alibaba stock already rate it a “buy” or better. However, the 12-month consensus price target has room for increases, resting at $164.52.
Furthermore, short interest rose by 8% on BABA stock during the most recent reporting period, resulting in about 128 million shares sold short. With a short-interest ratio of 4.5 days to cover at Alibaba’s current average daily trading volume, a short squeeze is certainly a possibility.
Finally, August implieds are pricing in a potential post-earnings move of about 7.9% for BABA stock. This places the upper bound at $153.77, while the lower bound lies at $131.23.
2 Trades for BABA Stock
Call Spread: Traders looking to bet bullish on Alibaba’s first-quarter report (and any bullish news that may happen along the way) might want to consider an Aug $150/$155 bull call spread. At last check, this spread was offered at $1.62, or $162 per pair of contracts. Breakeven lies at $151.62, while a maximum profit of $3.38, or $338 per pair of contracts, is possible if BABA stock trades at or above $155 when August options expire next month.
Put Sell: If a more neutral positions suits your trading style more, then a BABA Aug $130 put sell position has a solid chance at finishing out of the money. At last check, this put was bid at $1.76, or $176 per contract. Remember that you keep the initial premium received as long as BABA stock closes above $130 when August options expire. However, if BABA trades below $130 ahead of expiration, you could be assigned 100 shares of BABA stock for every put sold at a cost of $130 per share.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
